India – progress and development is thy name! And the same stands true for the Indian economy, more so for the ‘bond market’. An innovation of the recent past, asset-backed securities have grown to be a pivotal part of the corporate debt market. Floating rate instruments, convertible bonds, step redemption bonds, zero coupon bonds – these and many more such instruments are today being acknowledged country-wide.
A decade back, banks like ICICI and IDBI began issuing step bonds. While those of the ICICI Bank paid a higher rate of interest, those of the IDBI allowed clients to pay the redemption amount in instalments after an initial holding period. In addition, the approach of maturity of ICICI step bonds clearly showed the benefits of bond issuance in India, while IDBI step bonds had two put and call options before maturity. All these have provided a range of securities that have helped in maintaining a sought-after risk return balance. Due to these corporate issuers, preference has changed from public issues to private placements.
Upon comparing the equity market with the bond market for the past decade, we find that the equity market saw a drop of almost 14% of GDP – slumping from 42% in 1993-94 to 28.6% in 2000-01. Au contraire, the Government of India bonds (GOI bonds) enjoyed an increase of about 8% of GDP – from 28% to 36.7% – in the same period. As a result, there appeared a reduction in liquidity in the equity market and a substantial increase in liquidity in the Indian bond market.
But don’t get stupefied with the impressive statistics of the GOI bonds. Every coin has two sides. Similarly, there are some drawbacks to the Indian bond market also. The GOI bond market doesn’t use trade as an exchange and features a bilateral negotiation between dealers. The market hence, lacked price time priority. To top it, bilateral negotiations imposed credit risk on participants narrowing the market with a homogeneous credit risk.
The Indian bond market, however, is today at par with some of the leading markets of Asia like Korea. The grapevine is that in a few years, the Indian bond market will be counted as a renowned market of the world.
We feel proud to recognise the bond market of India better than that of China. And this is definitely an evidence of Indian economy’s quick progression. Moreover, the Indian bond market is profitable to almost anyone and everyone. The new business houses especially find the Indian market profitable from an operational point of view. That is pretty obvious as they have been able to initiate business in a very short time span and generate capital easily.
LIQUIDITY OF INDIAN DEBT MARKET
The liquidity of the Indian debt market has helped both the market as well as the various companies operating in it. But, for the market to sustain itself, and that too in an international level requires capital. Luckily, the Indian debt market has been able to attract enough companies.
POTENTIAL OF FIXED INCOME MARKET IN INDIA
Every market has its highs and lows. For the Indian market, the fixed income market is counted in the former. As stated before, the Indian economy is considered better than the Chinese economy, and the fixed income market is one amongst many reasons for this. Experts expect the bond market in India to grow manifold and become one of the biggest in the world in perhaps another decade or so.
SECONDARY INDIA BOND MARKET
One of the best secondary bond markets of Asia is that of India. It has a high amount of liquidity. The market is an establishment of sixteen primary dealers who underwrite the sales of the debt of the Government of India and deal with India’s apex bank, the Reserve Bank of India, directly. As icing on the cake, some bonds in the secondary market have maturity period of as long as thirty years!